State Farm proposes home insurance price hike after $1 billion spent on LA fire claims – Washington Examiner
State Farm is proposing a notable 22% increase in home insurance rates for Californians following the financial toll of recent wildfires in Los Angeles, wherein the company paid approximately $1 billion in claims. This rate hike comes after State Farm experienced nearly 9,000 claims from homeowners affected by the fires, which it described as some of the costliest disasters in its history.
In its request to the California Department of Insurance, State Farm cited financial depletion and the high risks associated with its coverage in California. The company’s recent history includes a 20% increase in homeowner rates in March 2024 and a halt on new home insurance policies in California due to escalating construction costs and catastrophe exposure. Critics have accused State Farm of capitalizing on the disaster to improve profitability,while the company defends the rate hike as necessary to align premiums with the risks it faces,especially after a history of underwriting losses.
California Insurance Commissioner Ricardo Lara has promised a prompt response to State farm’s proposal. As State Farm navigates these challenges, it aims to restore its capital while addressing the risk inherent in the California insurance market.
State Farm proposes home insurance price hike after $1 billion spent on LA fire claims
State Farm wants to raise home insurance rates for Californians by an average of 22% after the company paid out roughly $1 billion in claims due to the Los Angeles fires.
As the largest home insurance company in the United States, State Farm covers 20% of the area devastated by the fires in Los Angeles County, which the company said ranked as “the costliest disasters in the history of State Farm General.” In Altadena alone, 6,000 homes, or around 40% of all residential units, were destroyed by the fires, according to a Los Angeles Times analysis.
In a letter to the California Department of Insurance on Monday, State Farm said it had been financially depleted after receiving nearly 9,000 claims from Los Angeles homeowners. The company asked for emergency approval of the higher rates because it “still ensures high concentrations of risk in California that could generate financial losses multiple times larger than the company’s surplus.”
“A smaller capital base will further constrain State Farm General’s ability to provide coverage,” State Farm wrote in a press release. “Immediate emergency interim approval of additional rate is essential to more closely align cost and risk and enable State Farm General to rebuild capital.”
California Insurance Commissioner Ricardo Lara’s office responded to State Farm by saying his department would “respond with urgency and transparency to recommend a course of action…”
The request comes after State Farm raised the average homeowner rates by 20% in March 2024. In September, the insurance company predicted that the number of policies it issues in California would drop by 1 million by 2028. In 2023, State Farm announced it would stop writing new home insurance policies altogether in the Golden State due to “historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”
Critics say State Farm is manipulating the Los Angeles fires to increase the company’s profitability.
”State Farm has “built up an incredible fortune in order to deal with crisis,” Doug Heller, the director of insurance for the Consumer Federation of America nonprofit, told USA Today.
“If they feel that they are going to need rate hikes in the future, they have a right to go through the process, but to be putting on the emergency siren seems more like trying to bully the state into handing over cash while we’re trying to recover from disaster,” he added.
However, State Farm argued its rate hikes are justified due to the high risks the company has underwritten, particularly after it said premiums had been kept artificially low through California’s mandated price controls.
“We must appropriately match price to risk…Higher risks should pay more for insurance than lower risks. Over the last nine years, the lack of alignment between price and risk means that for every $1.00 collected in premium, State Farm General has spent $1.26, resulting in over $5 billion in cumulative underwriting losses,” the company wrote.
After facing pressure from Lara when the fires broke out in January, State Farm announced it would renew thousands of policies for Los Angeles homeowners it had previously canceled, including 1,100 policies lying in the heart of the Pacific Palisades fire.
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